Band tax strategy - not paying members
I operate a band that makes under k a year. A few shows a year we get paid larger sums of money (0+ per gig), and the venue uses my SSN and sends me a 1099 around tax season. So the "band" money gets taxed at my personal tax bracket, which takes a decent sized chunk out of the band's earnings. Ideally, if the band were its own entity, the band wouldn't get taxed much because of how little it makes.
The band does not pay its members; we save the money and use it to buy more gear. There are no plans to pay members for anything other than travel expenses (gas mainly)...but I'm willing to drop this requirement if it's going to make things more complicated. Also, we don't need any type of joint-ownership. I will be the sole owner of the band "company".
I'm struggling with knowing how to set up the band legally, without jumping through too many hoops operating something like a full corporation.
I think that I need to get an EIN. However, do I also need to set up an LLC, an S corporation, something else? Because of how little the band makes, I don't really want to spent a lot of money by paying an accountant.
What is the best option to keep it as simple as possible while preventing the band from suffering by being taxed at my tax bracket?
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Considering the low amount of gross income generated, and the fact that the money is put right back into expenses like gear and travel, the simplest method would be to register this as a sole proprietorship. Keep track of all income from gigs, CDs, T-shirts and such. Also keep all receipts for fuel, maintenance and repairs, and insurance on your gig vehicle(s), as well as distance traveled for work and non-work purposes. Based on the percentage of use of the vehicle for work/non-work travel you can deduct that percentage of vehicle expenses.
Do you use part of your house for storing gear and practicing? Same percentage calculations apply there for your house expenses (rent/mortgage interest, heat, hydro, water/sewer, insurance).
Gear purchased for doing work is also deductible. Typically items under 0 can be deducted in a single year, costlier items have to be spread over multiple years.
Your band-mates are your subcontractors. They can submit travel expense receipts and you can include those in your year-end taxes as well.
The good news is that most tax programs have a Small Business edition that will lead you through all this stuff. It is possible that your expenses will meet or exceed your income. If this is the case, you get back the deducted taxes at tax time.
For specifics on what can and cannot be claimed as a small business, you can either consult with a local accountant for your specific tax situation, or pick up a year-old copy of a small business tax software package and perform a "What If" analysis to see how you would fare had you claimed all your eligible expenses against your income.
The government expects you to be able to turn a profit within 5 years. If you can't do that, they may consider your enterprise a hobby business and disallow it.
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